China urged to stabilise yuan to lift domestic demand, with high exports ‘unsustainable’

Nomura’s chief China economist Lu Ting also urged an ‘appropriate’ amount of interest rate reductions and efforts to stabilise the property market

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China’s exports rose by 8.6 per cent from a year earlier in June. Photo: AFP

Published: 2:50pm, 2 Aug 2024

China needs to prevent a large slide of the yuan’s exchange rate, appropriately cut interest rates and stabilise the property market to help boost its weak domestic demand as it can no longer count on high export growth to drive its economy, according to a leading economist.

“High export growth is unsustainable,” Lu Ting, chief China economist for Japanese investment bank Nomura, told a conference in Guangzhou arranged by the Guangzhou Development District Holding Group and the Shanghai-based China Chief Economist Forum think tank on Thursday.

The yuan has come under renewed depreciation pressure since the start of the year, and has weakened by more than 2 per cent against the US dollar.

But early on Friday afternoon, China’s onshore yuan surged past 7.2 against the US dollar to a high of 7.194, which was the strongest level since May 3.

China’s exports rose by 8.6 per cent from a year earlier in June, but Lu estimated that growth would likely to decline to below 5 per cent and may even return to zero toward the end of this year or next year, citing cycles of the global economy and rising trade disputes as among the reasons for softer demand for Chinese goods.

“At this rapid rate of growth, and at this low level of price, it will definitely be targeted by other countries,” said Lu, adding that Republicans in the United States have already advocated for a 50 per cent tariff on Chinese imports as part of the 2024 presidential campaign.